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Compensating Employees Who Are Receiving Workers Compensation Benefits

§ 8.07.02
Key Point 8-07.02. Employees who accept employment while receiving workers compensation benefits may be committing fraud. This can have serious consequences for the employee, including criminal prosecution and repayment of benefits paid while engaged in gainful employment.

Workers compensation benefits are based on the degree and nature of an injured worker's work-related injury. "Total disability" benefits may be awarded upon a finding that the injured employee can no longer perform compensated employment. As a result, a person's eligibility to receive total disability benefits is directly affected if he or she begins performing compensated employment. And, such employment may not only result in a discontinuation of benefits, but also a legal obligation to return benefits already paid.

Is a church subject to any penalties if it knowingly hires and compensates a person who is receiving workers compensation benefits? In most cases, the answer is no. It is the employee, and not the employer, who may be required to return benefits paid while he or she was earning wages from a job. Still, it is a "best practice" for churches to consider the following precautions:

  • If a church employee is injured on the job (either at church or at another job), and is receiving workers compensation benefits, be sure the employee is legally permitted to perform compensated employment before allowing him or her to continue working.
  • If a church employee is injured on the job (either at church or at another job), and is receiving workers compensation benefits, be sure the employee complies with any "notification" requirements prescribed by state law. Persons receiving workers compensation benefits may be required to notify a state agency if there is any improvement in their condition, or if they perform compensated employment. Failure to do so may make the recipient legally obligated to return some or all of the workers compensation benefits that were paid.
  • Note that an injured employee is performing "compensated employment" (which may jeopardize eligibility for workers compensation benefits) if he or she is receiving compensation for performing services. The fact that the amount of compensation is small may be irrelevant. And, the employee cannot avoid disqualification by characterizing church compensation as "love gifts."
  • If your church has at least 15 employees, and is engaged in commerce, then you are subject to the Americans with Disabilities Act. This Act generally prohibits covered employers from discriminating in employment decisions on the basis of the disability of a person who is able to perform the essential functions of a job with or without reasonable accommodation by the employer. There are exceptions. For example, churches are permitted to discriminate on the basis of religion in their employment decisions. Many states have their own disability laws, and some of these laws apply to employers with fewer than 15 employees (and none requires interstate commerce)
Case studies
  • The Ohio Supreme Court ruled that an employee of a manufacturing company who was injured on the job and awarded workers compensation benefits was engaging in fraud by accepting compensation for performing services as pastor of a church.[26] State v. Pride Cast Metals, Inc., 764 N.E.2d 1021 (Ohio 2002). See also State ex rel. Rollins v. Industrial Commission, 2004 WL 422684 (Ohio App. 2004). The employee was injured while working for a secular employer, and he received a workers compensation award based on "permanent total disability." Several years later, his former employer learned that for nearly 15 years following his "injury" he had been earning a weekly salary of $600 as a pastor. A state agency later issued an order terminating his benefits, charging him with fraud, and ordering him to repay all benefits he had received. The state supreme court affirmed this order.
  • The Tennessee Supreme Court ruled that a person's entitlement to workers compensation benefits based on "total disability" was not affected by the receipt of $215 each week for services performed as a music minister at his church.[27] Cage v. Yasuda Fire & Marine Insurance Company, 2005 WL 1412135 (Tenn. 2005). The court noted that the minister's physicians testified that there was no manual work that he could do, and that he could only perform non-manual work for short periods. It concluded that the only reason that he received income from his church "was due to the generosity of the church, not because he was employable in the open labor market. … The evidence in this case supports a finding that the combination of limitations and other factors rendered him unemployable in the open market and therefore totally disabled" despite the income paid to him by his church. This ruling suggests that in rare cases a person who is receiving workers compensation or Social Security benefits based on total disability may be able to receive compensation for performing limited services on behalf of a church so long as (1) the person meets the definition of "totally disabled" under applicable law, and (2) the compensation paid by the church "is due to the generosity of the church, not because the person was employable in the open labor market."
  • A Louisiana court upheld the denial of workers compensation benefits to an injured worker who had been seen performing compensated services for a church.[28] Cajun Rental & Services v. Hebert, 918 So.2d 605 (La. App. 2005). The court noted that under Louisiana law a forfeiture of workers compensation benefits is proper when: (1) there is a false statement or representation, (2) that is willfully made, and (3) that is made for the purpose of obtaining workers compensation benefits. The court concluded that each of these elements was met. It relied, in part, on the surveillance videotape showing the person working at a church despite the fact that his workers compensation benefits were based on his claim that he was unable to perform compensated work. Upon being asked if he had ever provided "work of any kind" for the church, he explained that he thought he "did some volunteer work for them there." The court concluded that the statement that he had performed no work for wages was willful and was made for the purpose of affecting workers' compensation benefits.

Generally, a church is not subject to any penalties if it knowingly hires and compensates a person who is receiving workers compensation benefits. It is the employee, and not the employer, who may be required to return benefits paid while he or she is earning wages from a job. Still, it is a "best practice" for churches to consider the following precautions:

  • If a church employee or independent contractor is receiving workers compensation benefits, be sure the person is legally permitted to perform compensated employment before allowing him or her to continue working.
  • If a church employee or independent contractor is receiving workers compensation benefits, be sure the employee complies with any "notification" requirements prescribed by state law. Persons receiving workers compensation benefits may be required to notify a state agency if there is any improvement in their condition, or if they perform compensated employment. Failure to do so may make the recipient legally obligated to return some or all of the workers compensation benefits that were paid.
  • Note that an injured employee or independent contractor is performing "compensated employment" (which may jeopardize eligibility for workers compensation benefits) if he or she is receiving compensation for performing services. The fact that the amount of compensation is small may be irrelevant. And, the employee cannot avoid disqualification by characterizing church compensation as "love gifts."
  • A church that has at least 15 employees, and is engaged in commerce, is subject to the Americans with Disabilities Act. This Act generally prohibits covered employers from discriminating in employment decisions on the basis of the disability of a person who is able to perform the essential functions of a job with or without reasonable accommodation by the employer. There are exceptions. For example, churches are permitted to discriminate on the basis of religion in their employment decisions. Many states have their own disability laws, and some of these laws apply to employers with fewer than 15 employees (and none requires interstate commerce).
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